REVIEW

Big Distances, Big Investments

Currently in a process of infrastructure development, the ICT sector is a key growth area on the government’s agenda, as it looks to continue to attract foreign investment.

The large territory of Kazakhstan has struggled to develop fixed-line telecommunications in the past, and the same problem has also hindered the expansion of the broadband user base. However, since market liberalization of mobile telecommunications and internet services in 2004, it has been mobile telephony that has led growth in the telecommunications sector. Since then, the mobile subscriber base has increased from the lowly 260,000 seen in 2000, to upwards of 14.5 million—a penetration rate of 98%. Exact figures, however, are hard to acquire due to the prevalence of multi-SIM usage. Left in the dust by mobile telephony, fixed telephony has stagnated due to the continuing near monopoly held by Kazakhtelecom, which also owns 49% of number-one mobile operator Kcell, the rest owned by Fintur Holdings, a venture owned by TeliaSonera and Turkcell. The fixed-line penetration rate has seen little improvement since 2008, when the figure was posted at only 23%, and only 8% in the countryside. Internet penetration stands at 34.3% as of 2010 according to the IMF, with broadband representing a figure considerably lower due to the lack of necessary infrastructure. The communications sector, in that regard, offers considerable opportunity for investment.

A downward trend in overall communications revenues is also in reverse, after total income dropped to $1.9 billion in 2009 from $2.3 billion the previous year. Due to increasing real incomes, it is expected revenues could reach $6.1 billion by 2014. In 2010, telecommunications revenue was equivalent to just under 2% of GDP, placing the country slightly behind Russia and Ukraine in the region. IT is also a growth sector, and has seen multinational players such as Hewlett-Packard and IBM begin operations in the country. The plan is to grow the IT industry without building expensive infrastructure. Increasing PC ownership in businesses and homes is spurring growth, and the translation of Microsoft products into the Kazakh language is also giving impetus to the software sector. E-government is also on the agenda, and it is hoped a system of e-governance—a project that has already seen significant investment—will make public administration more accessible.

MOBILE TELEPHONY

In 2009 Kazakhstani GDP growth was recorded at 1%, while the telecommunications sector stormed to a growth rate of 8%. In 2010 the trend continued and hit 10%, outstripping GDP estimates dramatically.

The sector owes these figures to the burgeoning mobile telephony segment, which is developing its 3G and fiber optic infrastructure to improve communication across the country’s vast landscape. “Kazakhstan is the size of Western Europe… mobile phone[s have] brought amazing opportunities”, Karel Holub, General Manager of Nokia, South CIS told TBY. Kcell, a subsidiary of the incumbent fixed-line operator Kazakhtelecom is the market leader, with 9 million out of a total 16 million Kazakhstanis opting for its services. Beeline, the trademark of Russia’s third largest operator, VimpelCom, is second in the market, with approximately 7.5 million subscribers. Multi-SIM usage is to explain why the figures present a penetration rate of over 100%, with the true figure estimated at around 98%.

The development of 3G is also in full swing, with both Beeline and Kcell offering varying data packages. “Kcell has always been a trendsetter and we are leading the development of the telecommunications market in Kazakhstan. We shall continue doing this in 2011, introducing new 3G services”, Veysel Aral, CEO of Kcell told TBY. Tele2 and Altel make up the sector as minor players, with fewer than half a million subscribers each, and the latter being half owned by Kazakhtelecom.

FIXED TELEPHONY

The state-owned Kazakhtelecom remains the dominant player in the fixed-line sector, with a market share of around 90%, with competition in international and long-distance services from a variety of other firms, including TransTelecom, KazTransCom, Ducat, and Astel. However, in rural areas—which have remained mostly loss making—the company maintains a de facto monopoly.
Kazakhtelecom, 51% of whose shares belong to the national sovereign wealth fund Samruk-Kazyna, serves more than 3.33 million fixed-line subscribers as of 2009 from a potential total closer to 5 million. It is currently implementing a number of infrastructure upgrades, and is especially focused on the development of village infrastructure and broadband internet access. Its current network includes 11,500 kilometers of fiber-optic communication lines. Cisco Kazakhstan has been instrumental in helping the company expand and improve its coverage, especially in rural areas, which has helped raise the quality of the business environment in the country overall. “We are proud to see our work contributing to reducing travel expenses and helping the business world defy geography and come together to make key decisions,” as Aidar Dauletov, General Manager of Cisco Kazakhstan, explained to TBY.

Along with the advance of simplified internet access, the PC market has witnessed steady growth of late. According to the Kazakhstan Statistics Agency (KSA), 541,000 computers were in use in 2009, up from 115,000 in 2005. More and more local firms are assembling computers, and the development of techno parks is assisting the sector. A significant spare parts market has also emerged. One such firm producing computers is Glotur, which launched an assembly line for low-cost PCs in 2008. The rise of low-cost computers is also tipped to be a cause for further growth in usage rates in the coming years. In order to replicate the success seen in India, techno parks are designed specifically to boost the IT sector and offer tax incentives. Software is also a sector on the move, and in addition to the increased presence of foreign multinationals, the translation of products including Windows into the local language has kept the software market robust. Furthermore, IBM moved to open a Linux innovation center in Astana in 2010, aiming to promote open-source software. There are also a growing number of local firms in operation, including ALSI, offering maintenance services, and ARTA, manufacturing software products and providing services.

INTERNET

An estimated 17.2%, or 2.8 million people, were actively using the internet at end-2010. Broadband penetration was at 7.9%. Additionally, 54.2% of businesses used the internet in 2009, up from 51.2% in 2005, according to KSA figures. Broadband usage is increasing, however, and the number one provider—Kazakhtelecom—saw a user increase of 112% in 2009. The roll out of the next-generation network and rising incomes should spur the sector on over the coming years, as will the development of e-commerce and e-government. The introduction of 3G will also begin to show its effect on usage rates going forward.

First-tier ISPs with international internet connections include Kazakhtelecom, Nursat, Transtelecom, Kaztranscom, Arna, Astel, and TNS Plus. Furthermore, there are approximately 100 second-tier ISPs, including Kcell, with 3G offerings, INTELSOFT and AlmaTV, with cable offerings, Beeline, with both cable and 3G offerings, DigitalTV, with WiMax solutions, and Jet3G, with 3G packages.

With increasing penetration, the government has also begun seizing the opportunity to develop e-government in order to ease bureaucratic procedures for citizens. The initial investment allocated topped $380 million, and its effective utilization is expected to continue into the future.